Blog archive - July 2011
Use the blog to discuss and comment on the latest industry insights provided by our analyst experts.
by Ronald Gruia 26 Jul 2011
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Digesting Verizon's and AT&T's results from last week one can clearly notice a downward pattern for the second half of 2011. AT&T guided its total CAPEX down YoY 14% for 2H11, while Verizon followed suit, down 16%. A softer spend in the second half of the year is a bit rare, given the usual trend of back-end loaded CAPEX for AT&T and Verizon and could have ramifications to network infrastructure vendors with exposure to both carriers. Verizon 1H11 wireless CAPEX was $400 million higher than expected, suggesting a front-end load. AT&T fixed and mobile spend in the first semester of 2011 was stronger than previously anticipated. On the positive side, Verizon Wireless sold 1.2 million LTE devices in Q2, and its 4G buildout continues strong (LTE now live in 102 markets and Verizon claims it will be 175 markets covering 185 million POPs by YE 2011). This indicates that in the second half of the year, the LTE CAPEX will continue to ramp up, at the expense of other legacy technology (e.g. CDMA EV-DO).
by Jake Wengroff 26 Jul 2011
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The article below was first published in Social Media Today on July 21, 2011. With Twitter about to close a two-stage $800 million round of funding, as reported yesterday in the Wall Street Journal’s All Things D blog, one might ask: what are they going to do with all of that cash? According to several sources, roughly half will be used to cash out current investors and also some employees, and the rest will be spent on ‘basic funding needs,’ according to the Wall Street Journal. The funding round values Twitter at $8 billion, which is more than double what Twitter was valued at when it received $200 million in venture funding from Kleiner Perkins in December, at a $3.7 billion valuation. Once the funding closes, Twitter’s total cash haul since its founding five years ago will be $760 million. More importantly, what will the new, richer, Twitter look like, and what will it mean for us social media managers and marketers? More Ads? For starters, everyone knows that Twitter has been desperately trying to sell advertising, through its Promoted Products – Tweets, Trends Accounts. For any marketing or advertising manager who has investigated Twitter’s eye-popping ad rates, perhaps few are surprised that we don’t see more ads – the tiny ‘yellow pills’ with the word ‘Promoted’ -- laced throughout the micro-blogging service. Without breaching confidentiality, as I have had a few conversations with Twitter, all I can say is that the price for a Worldwide Promoted Trend on the homepage of Twitter is in the low six-figure range – out of reach for most companies and a hard sell for companies in the B2B or non-technology space. A Premium Twitter, Possibly One route Twitter hasn’t quite explored is the ‘freemium’ model favored by social networks LinkedIn and SlideShare, in which power users or those wishing for access to more features can buy their way in. (Multiple revenue streams – advertising and premium subscriptions – are what make Internet companies attractive to investors, propelling them further to IPO.) Currently, it is free to join Twitter, and Twitter does not charge users or companies any more for having a high number of Followers or Followings, or a particularly heavy volume of tweets. With new financing and more scrutinizing investors, premium Twitter accounts might be on the way. Companies, especially those with large, recognizable consumer brands, which rely on Twitter as an additional channel for customer feedback and warnings of service issues, would gladly pay up. I’m curious to know how Twitter will price its premium subscriptions. Buying Spree With Twitter’s purchase of TweetDeck, for about $50 million in May, along with the roll-out of its own URL shortener and photo-sharing service, it is clear that Twitter wants to control more of the native environment for its users. With the new funding, expect Twitter to go on a buying spree and purchase smaller apps and companion services that will make the Twitter experience richer and (hopefully) more user-friendly for all. (Does anyone remember how odd and low-frills the ‘Old Twitter’ was?) Twitter will also probably have more oversight on the development of its mobile apps, ensuring that its advertisers – or future premium subscribers – resolve properly or more vividly on smartphones and tablets. While most of Twitter’s decisions catch us all by surprise, I remain curious as to what the Big Bird will do next for revenue – and how that will affect the everyday social media manager.
by Ronald Gruia 21 Jul 2011
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Microsoft just released its Q4FY11 results after the bell. Net income rose to $5.87 billion, or 69 cents a share, from $4.52 billion, or 51 cents a share in the same period last year – and that was ahead of most estimates. The call this afternoon should give us a few clues about some catalysts for the company in the Fall, including Win 8 timing (could perhaps get a beta release in September), Skype integration, Nokia phones, tablets running on a Microsoft OS (company still hasn’t yet announced a tablet-specific OS per se), and a potential dividend increase. Last week, Microsoft gave its partners an advance preview of Windows Server 8 at its Worldwide Partner Conference. The next version of Windows Server features over 100 new capabilities and enhancements, including a new Hyper-V hypervisor. According to zdnet.com, Windows Server 8 is on the same release track as Windows 8 and could be out as early as the first half of 2012 (with a good cushion for the back-to-school frenzy next year). The most likely scenario is for a gradual economic recovery and PC refresh cycle, with PC sales growing 2% YoY in CY2011 and 5-6% in CY2012, modestly driving Windows revenue growth. But going forward, the key questions to ask will be whether the Redmond giant can be successful in the highly competitive tablet and handset businesses and if Microsoft can win in the emerging cloud space. While Microsoft has done well with Xbox and is making headway with search, the mobile results have been a bit disappointing, but they are expected to improve once the first Nokia sets with WP7 begin to ship.
by Ronald Gruia 21 Jul 2011
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What We Expect to Hear on the Call Today 1- Update on the T-Mobile Merger All analysts will be looking for some clues on the progress of the T-Mobile USA acquisition. In all likelihood, through the 2012 presidential elections period the government/regulators will take a mostly hands-off approach to the industry as the Obama administration attempts to position itself as more business-friendly. We believe that the AT&T+T-Mobile deal will eventually get done (though with concessions and after heavy lifting). 2- Performance Assessment Post Loss of iPhone Exclusivity This is the first full quarter in which analysts will try to get a read of the iPhone post-paid net add impact – thus far, AT&T seems to have weathered the storm quite well, handling the Verizon iPhone launch fairly well in the first quarter of 2011, by adding 62k postpaid net adds versus various analysts forecasts which had called for a consensus figure closer to 50k. The chief contributor for this was AT&T’s $50 iPhone offer, a promotion which continued in Q2 and that drove upgrades from existing subscribers and boosted AT&T’s gross add share in the Q. 3- Overall Read of the Business We will be looking for clues on improvement in fundamentals, premised upon factors such as: Handset subsidies peaking Improved pricing power IP cannibalization peaking CAPEX levels have already hit a top, and that might lead to improved FCF generation The potential of cloud computing, which can improve the wireline story (including OPEX savings and improved efficiencies) Early Read of Results Ahead of the call, AT&T has released a snapshot of its Q2 results this morning. Highlights include: Sales rose 2.2 percent to $31.5 billion; Q2 net income fell 10%, but sales and subscriber trends improved as iPhone adds held steady from the first quarter A gain of 331,000 users on contracts beat an average estimate of 96,000 of six analysts that was compiled by Bloomberg Of AT&T’s iPhone activations, 24 percent were new subscribers, a sign that it was not only the promotion that delivered 3.6 million iPhone activations in the quarter, up from 3.2 million last year U-verse service, which offers packages of home-phone, TV and Internet service, added 202,000 video customers for a total of 3.4 million
by Ronald Gruia 19 Jul 2011
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Here's a prank from some Belgian hackers who wanted one of their operators to experience "great customer service". Enjoy! http://www.youtube.com/watch?v=mxXlDyTD7wo&feature=player_embedded
by Rob Arnold 18 Jul 2011
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By Rob Arnold and Roopam Jain Developed under codename “Rally”, the CX7000 Unified Collaboration System http://bit.ly/qf0yoK
will help to round out the group collaboration offerings within Polycom’s portfolio of CX endpoints optimized for Microsoft Lync http://bit.ly/pkIhQ1,
which already includes the CX5000 Unified Conference Station with 360 degree panoramic view and the CX3000 IP Conference Phone. Native support for Microsoft RTA and RTV protocols allows the CX7000 room video conferencing system to be implemented just as other CX endpoint directly connected to Microsoft’s flagship UCC platform via plug and play install without requiring additional drivers, and to be centrally managed via Lync utilities. The CX7000 kit, which includes appliance and peripherals (microphone array, camera, keyboard and mouse) will be offered at a suggested list price of under $10,000. That should make it a very attractive option for distributed sites, executives, and remote users seeking a cost effective, easy to use video conferencing solution that truly behaves as a native Lync endpoint. Lync users will also benefit from a familiar UI experience and the simplicity of native integration with Exchange and Active Directory. Integration with SharePoint and Accordent video-on-demand will enable a powerful collaboration suite for Microsoft and Polycom customers. In addition to support for premises-based solutions, these capabilities will also be offered as part of Office 365 cloud-based services for user environments that are looking to outsource collaboration. CX7000 supports 720p/30fps for point-to-point calls. However, it will only support SD quality video resolution for multipoint video due to Lync MCU limitations issues. Customers wanting HD in multipoint may choose to deploy the Polycom HDX solution with RMX bridging, which provides full RTV and true HD multi-point calling with continuous presence. Yet, deploying HDX with RMX bridging to get high definition video presents a tradeoff of other features. For example, Lync features such as collaboration, IM, and application sharing will not function in an RMX call. In addition, deploying RMX will not present the same seamless management and provisioning as is supported with CX7000 deployed as a Lync end point. Since CX7000 is optimized for Microsoft’s RTA and RTV proprietary protocols, there are also some capabilities such as Lost Packet Recovery which will not be available. Finally, the suggested sub $10,000 sticker for the CX7000 kit does not include displays (one for real time video and a second for collaboration/content sharing) that would be needed to support the full scope of rich multimedia conferencing capabilities. Developing a strategic relationship with Microsoft to offer integrated voice and visual communications for the OCS/Lync environments has been a key focus area for Polycom. The multi-year partnership with Microsoft has been very beneficial to Polycom which has been outpacing competition in sales and customer growth in recent quarters. Polycom has remained in step with key initiatives to evolve Microsoft’s UC portfolio. CX7000 gives Polycom a unique opportunity to push deeper into Lync environments and a stronger opportunity to leverage Microsoft’s channels in selling its videoconferencing solutions.
by Roopam Jain 16 Jul 2011
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Early this week I attended Cisco Live and the adjunct CScape analyst event in high energy Vegas. Despite the press surrounding Cisco’s ongoing troubles (http://tinyurl.com/69hcuo7),
the tone of the event was positive and the attendance was a record 15,000+ attendees in-person and 40,000+ attending virtually. Cisco’s executive team remains focused and committed to execute despite the distractions. John Chambers’ keynote was balanced – upbeat but realistic enough to make Cisco’s recovery path appear credible. It covered everything that one expected to hear as Cisco moves ahead, acknowledging the need to streamline the company and focusing on innovation around four key communication tenets – mobile, social, visual and virtual. Cisco’s collaboration business has been a strong performer and was the focus of my discussions at Cscape. Cisco laid out a clear direction and roadmap for Jabber and WebEx, with Jabber becoming Cisco's next generation unified client that ties together multiple communication and collaboration applications. Mobility has long been center stage for Cisco and, as one of the four key tenets, is now even more prominent in the company’s initiatives. Besides the progress made by its own enterprise grade collaboration-ready tablet Cius, Cisco also leads the market in providing extensions of its communication applications over multiple mobile devices and operating systems. WebEx offers High Quality video over ipads, iphones and Android devices. With more than 1 million mobile downloads already, WebEx mobile is clearly a point in case for the fast emerging world of mobile collaboration. Cisco’s overall mobility strategy positions it well for the post-PC era, a clear differentiator over its competitors. Video as expected remains a key highlight at any Cisco event. During his keynote, Chambers set the tone for video’s prominent role in the future with a bold statement that video will not only be the next voice but will also be the primary form of IT. While one may question the ability or willingness of IT and the timeline for the transition, it clearly reflects a growing end user need and the direction that Cisco will continue to pursue. Video has been integrated into all communication clients offered by Cisco including Jabber. Jabber video clients will interoperate with Cisco TelePresence and other video solutions as well. High Quality video within WebEx will be enhanced to HD video, further putting the spotlight on the role of video in desktop collaboration. Lastly, Cisco’s recent focus on openness and standards based products removes several doubts around its ability to interoperate. As one looks at Cisco’s pervasive video strategy, it's reasonable to question customers’ ability to deploy wide scale video and its impact over their networks. I saw demos of Cisco’s recently announced Conductor solution and Prime Software. Conductor, which acts as a traffic director to ensure intelligent conference placement and admin controls, and Prime a comprehensive network management tool could solve several IT headaches associated with broad video deployments. Expect to hear more from Cisco's infrastructure team as it works across several fronts to bring out advanced management and control capabilities. For customers looking at outsourcing videoconferencing, Cisco offers Callway, a cloud -based subscription service which was launched early this year. Interestingly, Callway remains little known and under-marketed. There is a growing need among customers to move video into the cloud for ease of use and management and to enable seamless B2B communications. B2B remains a key challenge for videoconferencing customers today. The Frost analyst team met with BT conferencing, a key Cisco partner, at the show. BT is doing significant work on B2B and managed services for video, providing an open interoperable environment between multiple vendors' solutions and is seeing very strong growth revenue growth for its managed videoconferencing services. At the pervasive video roundtable discussion it was heartening to see a true case of pervasive video presented by West Texas A&M University which is using video for learning, security and communications to enable next generation learning. Video has been integrated through web presence, learning management systems, digital signage, surveillance, and video enabled smart boards using Cisco MXE and Show and Share. James Web, CIO at West Texas A&M University, mentioned that the new generation of students uses video and social media pervasively. As a result, they not only expect video in the class room but in some cases are demanding it. I left CScape with a clear understanding of Cisco’s advantage in the industry as an end to end provider of all elements of collaboration to its customers – messaging, presence, voice, audio, video and web conferencing, unified messaging and mobility. However, Cisco’s collaboration vision is not without challenges. Its product lines today are a mish mash of multiple architectures and form factors. While consolidation is on Cisco’s agenda, we expect it to be a while before we see significant product simplification from an end user perspective. The multiple acquisitions have also resulted in operational challenges. Cisco’s channel integration issues, post Tandberg acquisition, have been well known. Cisco launched a new program for its AV channels early this year. However, its channel issues will be resolved only gradually as Cisco builds a well laid out plan, where each partner sees benefits in the bigger Cisco pond. Lastly, to ensure long term growth Cisco needs to aggressively address its lack of presence at the low to mid end of the market where competition is winning. Not only will Cisco need to redesign the products but also address a new level of price competitiveness that it is traditionally not known for. Over the next several months a key focus at Cisco is streamlining. If Cisco stays focused on its execution plan, it can drive new growth through its collaboration portfolio which is very well positioned to lead in the post-PC era and in next generation communications that will be supercharged with video.
by Francisco Rizzo 11 Jul 2011
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To say that 2010 was a turnaround year for enterprise communications falls short of capturing the relief telecom vendors felt after having overcome the worst recession in a decade. As the economies of the world are beginning to recover, vendors are gradually refocusing their attention on issues pertinent to product and business development, and parting ways with the stress of endless budget tightening. In the case of Digitally Enhanced Cordless Telephony (DECT) and Voice over Wireless Local Area Network (VoWLAN) handsets, 2010 and the first half of 2011 were marked by many interesting developments in terms of product functionality and application integration. Advanced alarm and man-down features, 2D barcode scanners, HD audio (wide-band), more centralized management functions, and superior ruggedized designs are some of the developments that are augmenting the value proposition of wireless endpoints. As endpoints become more intelligent and interoperable with third-party platforms, enterprises will be more likely to consider these solutions. Not only do these devices make workers more productive (consequence of having real-time communication between workgroup members and on-demand access to information) but they also allow for better customer care (the reduction of overhead pages has proven to reduce patient recovery time in hospitals, and improve the customer shopping experience in retail stores). Furthermore, DECT and VoWLAN vendors are designing solutions around the specific needs of the different verticals (hands-free devices for healthcare and retail, and more rugged handset for extreme environments), thus adding even more value for their customers. The effect of these technology developments is made even stronger by two important trends that have gained considerable traction in recent times - enterprise mobility and Unified Communications (UC). The manner in which employees collaborate is being redefined by UC and the mobile solutions that permit remote workers to stay connected with their office-based counterparts. A new work culture is beginning to appear within the global enterprise space, and it’s fair to say that the catalyst behind this change is technology-based. Wireless voice solutions within the enterprise were considered a luxury in the past; however, many companies are now viewing these devices as indispensable for achieving their business objectives. As the devices evolve, the possibilities of incorporating them into the different phases of the value chain grow exponentially. In some cases these devices are even changing the way employees perform specifics tasks. If we look at the process of cleaning up and preparing an Operating Room (OR) in a hospital, the use of wireless solutions has dramatically changed the way hospital staff carry out this particular task. Now with the simple push of a button on their wireless devices, nurses can notify other staff that the OR needs to be prepped for the next patient. As a result many healthcare institutions have been able to maximize OR turnaround and consequently have been able to schedule more procedures. This translates into greater revenue for the hospital as well as better patient care (patients don’t need to wait very long for the OR to be ready). But the examples of improved business process through the use of wireless devices are not limited to the healthcare vertical. Retail stores are finding great value in barcode scanner integration onto the telephony endpoints. Now retail staff can scan any product in the store and make an inquiry with regards to stock availability. This eliminates the need for overhead pages as well as the time-consuming task of having to physically go check the stock room. The list goes on… Both VoWLAN and DECT endpoints are evolving in terms of functionality and application integration. As a result, enterprises are discovering that there solutions provide much more than just audio communication. These devices are making their way into the day-to-day workflow of specific verticals and in many cases changing the way specific tasks and processes are performed. Frost & Sullivan expects these endpoints will offer even greater features and functionality in the future. Don’t be surprised when video becomes standard on VoWLAN devices (the next big trend in enterprise mobility). With the ratification of the IEEE 802.11n standard, expect to see great advancements in data-intensive applications. As enterprise users become accustomed to the greater convenience and productivity granted by wireless devices, they will increasingly demand such solutions in their workplace, driving further growth in the VoWLAN and DECT markets.
by Ronald Gruia 01 Jul 2011
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A consortium led by Apple, EMC, Ericsson, Microsoft, RIM and Sony won the Nortel IP portfolio auction with a bid of $4.5B The announcement certainly surprised some who expected the proceeds to be more in the range of $1.5B. Moreover, the final price tag reflects a 5x multiple on the initial stalking horse bid made by Google. While companies will be committing different amounts (RIM has a $770M contribution while Ericsson's contribution is $340M, and RIM probably won't be getting any of the semis patents), the announcement at least represents a silver lining for Canadians, as some of the patents will be staying home with RIM. Rationale for the $4.5B valuation This is the most widely asked question - is it indicative of the current frenzy within the patent and IPR industry? Perhaps, but some quick back-envelope calculations might suggest that the winning bid might not have been as exuberant as some pundits believe. For instance, W-CDMA phone unit volumes in the first seven years of their introduction were in the range of ~ 1B units; within the first 10 years, in the range of ~ 2B units. Assuming LTE handsets follow a similar pattern, then this deal cost the consortium ~ $2.25 / handset (= $4.5B / 2B) So this means it's more or less within 1% of the price of an LTE handset that is pegged to cost between $200 to $250 on average. Which means that this price is really at the high end of that valuation (i.e. within a 1% royalty range). Of course this does not take into account other intangibles that are hard to factor such as potential windfalls such as improved competitive positioning, successful patent infringement lawsuits, patent infringement lawsuit avoidance, and possibly the spin-off of some patents to patent holder players such as Mosaid Technologies, among others. Happy Canada Day!